Nation's two largest defense firms vied for shipyard in 2001

Fight over Newport News yard included a lawsuit from the Justice Department to block one bid

July 15, 2010|By Peter Dujardin, pdujardin@dailypress | 247-4749

NEWPORT NEWS — Northrop Grumman's November 2001 purchase of Newport News Shipbuilding was the culmination of several months of drama involving two defense giants vying to buy the nation's largest shipyard.

The competition began in April 2001, when defense powerhouse General Dynamics offered $2.6 billion for the yard. Not to be outdone, rival Northrop Grumman bid the same amount a month later.

The fight over the Newport News shipyard — the nation's only aircraft carrier maker and one of two submarine builders — was the last and arguably most important piece of a major shipbuilding industry realignment that began in the 1990s.

At the time of the bidding, General Dynamics owned three of the nation's six major private shipyards, while Northrop Grumman had recently purchased two of them.

The argument over the next several months — with members of Congress, the Pentagon, defense experts and both bidding companies all weighing in — was over which combination would serve the country better.

Then, in November of 2001, in a move that stunned many defense industry analysts, the Justice Department essentially killed off General Dynamics' takeover bid.

In one of the first significant antitrust decisions of the Bush administration, the Justice Department sued General Dynamics and Newport News Shipbuilding in federal court to block the deal — saying it would create a monopoly in nuclear submarine construction and hurt competition for other ship contracts.

"This merger would give General Dynamics a permanent monopoly in nuclear submarines and would substantially lessen competition in surface combatants," Charles A. James, the assistant attorney general at the Justice Department's antitrust division, said at the time. He said the merger would increase costs to taxpayers.

Even as Newport News Shipbuilding and General Dynamics' Electric Boat division — the nation's only submarine makers — had embarked on a teaming agreement to jointly build a new class of attack subs, the Justice Department still said the companies shouldn't merge completely.

With that, the General Dynamics deal was scuttled. Five days later, Newport News Shipbuilding's board of directors approved Northrop Grumman's buyout offer, which had passed muster with the Justice and Defense Departments. Shareholders signed off on it months later.

"We are now the largest Navy shipbuilder in the world," Northrop Chairman and Chief Executive Officer Kent Kresa said the day after the board vote. "And we only get involved in a growing market. This market has a lot of growth potential."

Northrop's rise to the rank of world's largest shipbuilder came in an extremely short order for a company previously known primarily for electronics and aircraft and not ships.

In April 2001 — only a month before it first offered to buy Newport News — Northrop acquired two major shipyards on the Gulf Coast through its purchase of Litton Industries. Litton, the owner of Ingalls Shipbuilding, in Pascagoula, Miss., had bought out Avondale Industries, near New Orleans, two years earlier.

Newport News Shipbuilding had also made an offer for Avondale in 1999 — before Avondale agreed to instead be bought out by Litton.